equityletter.com 8/31/09
Note: Event Calendar is located at bottom of page
I. General Commentary
The major market averages under our coverage that we currently rate with a positive weekly technical indications are the SPDR- S&P 500 (SPY-103.38), IShares Russell 2000 Index Fund (IWM-58.05), NASDAQ Composite (COMP-2028.77), Powershares QQQQ Trust (QQQQ-40.44), Diamonds Trust (DIA-95.58) and the I-share 7-10 year Treasury bond (IEF-91.33) We currently have a negative view on the U.S. $ Index (UUP-23.28). Take note that there are no changes of opinion from the prior week.
Sectors within our coverage universe that remain in favor according to our weekly oriented technical analysis include Financials (XLF), Managed Healthcare, Internet Related (HHH), Homebuilding (XHB), Retailers (RTH), Pharmaceutical (PPH), Semiconductors (SMH), Agriculture (MOO), Coal (KOL), Oil Service (OIH), Real Estate (IYR), Transportation (IYT), Large Integrated Oil companies (XOI), and Steel (SLX). Take note that the XOI is a change of opinion from the previous letter. Use price weakness to increase long exposure or to initiate long trades.
Sectors that we believe to be currently vulnerable to a downside correction are the Natural Gas (UNG), Crude Oil (USO), and Gold (GLD). Take note that there are no additions to the negative list from the previous letter.
Sector analysis below will provide information as to where to best allocate funds at this time.
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II. Sector Analysis
The IEF-91.33 (I-share 7-10 year Treasury bond) advanced 0.97% for the week as the yield on the 10- year treasury decreased from 3.55% to 3.45%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF is entering week three of a “buy” signal. The weekly closing price support level in order to maintain our current “buy” signal shall remain at 90.42. Any weekly closing price below 90.42 will negate our current “buy” signal for the IEF. The unusual price action continued for the second consecutive week as the equity markets were strong along with strength displayed in the bond markets. We shall maintain our bullish stance until our price level is violated on a weekly closing price basis.
A. Financials
The Financial Select Sector Index (XLF-14.75) finished the trading week with a 1.37% advance. The XLF is now positive by 17.81% to date for the 2009 trading year. The XLF is entering week twenty-five of a weekly “buy” signal. Our weekly price support for the XLF shall be raised to the 14.40 level. Any weekly closing price below 14.40 will negate our current “buy” signal for the XLF. XLF components that remain in “buy the dip” mode include Goldman Sachs (GS-164.42), Bank of America (BAC-17.98), Bank of New York (BK-28.93), MetLife (MET-38.08), J.P. Morgan (JPM-42.92), Wells Fargo (WFC-27.30), Citigroup (C- 5.23), U.S. Bancorp (USB-22.43), American Express (AXP-34.24), and Morgan Stanley (MS-29.51). The only top ten XLF component that remains on our “sell” list is
B. Builders
The Homebuilder exchange traded fund (XHB-15.85) advanced 3.32% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 32.30%. The XHB is entering week seven of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal for XHB shall be raised to 15.14. Any weekly closing price below the 15.14 support level will negate our current “buy” signal in the XHB. XHB components that currently reside in weekly “buy” mode include D R Horton (DHI-13.72), Pulte Homes (PHM-13.16), Toll Brothers (TOL-23.10), KB Homes (KBH-18.20), Ryland Group (RYL-23.75), and Lennar (LEN-15.73). The XHB continues to rest just below what we consider to be a key weekly price resistance level, the 16.00 area. While we are reluctant to fight the trend and call a top, we must convey that the current risk/reward for the sector now favors the risk side. Long positions should tighten up protective sell-stops at current price levels to protect profits. Although appearing somewhat extended to the upside the weekly trend remains favorable: continue to use price weakness to accumulate long positions and or to initiate long trades.
B. Semiconductor
The Semiconductor group (SMH-25.69) advanced 2.69% for the week. The SMH performance for 2009 to date stands at a positive 45.88%. The SMH is entering week seven of “buy” mode. Our weekly price support level shall be raised to the 24.66 level. Any weekly closing price below 24.66 will negate our current “buy” signal for the SMH. Fresh weekly “buy” signals have been generated in SMH components Intel (INTC-20.25) and Novellus (NVLS-19.55). Weekly “buy” signals remain prevalent in SMH components
D. Retailers
The Retail sector (RTH-86.80) finished the trading week with a 1.81% advance. The 2009 performance of the RTH currently stands at a positive 15.51%. The RTH is entering the seventh week of a “buy” signal. Our weekly closing price support level for the RTH shall be raised to 84.46. Any weekly closing price below 84.46 will negate our current “buy” signal for the RTH. RTH components that continue to enjoy favorable weekly status include Target (TGT-47.39), Home Depot (HD-27.69), Walgreen’s (WAG-33.68), WalMart (WMT-51.13), and Kohl’s (KSS-52.55). RTH components that currently reside in weekly “sell” mode include BestBuy (BBY-37.54) and Sears Holding’s (SHLD-64.44). There are no changes of opinion from the prior week. Although somewhat extended to the upside, the trend remains favorable; use price weakness in the RTH and positively mentioned components to increase long exposure and or to initiate long trades.
E. Steels
The Steel sector (SLX-48.39) finished the week with a 0.27% advance. The current 2009 trading year return for the SLX is a positive 64.75%. The SLX is entering the seventh week of a “buy” signal. Our weekly closing price support level for the SLX shall remain at 47.21. Any weekly closing price below 47.21 will negate our current “buy” signal for the SLX. Weekly “buy” signals remain in place for SLX components
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-64.53) declined 0.16% last week. The current 2009 return for the PPH stands at a positive 5.21%. The PPH is entering the seventh week of a “buy” signal. Our weekly price support level shall be raised to 64.20. Any weekly closing price below 64.20 will negate our current weekly “buy” signal for the PPH. Weekly “buy” signals remain in place for Johnson & Johnson (JNJ-60.29) and Abbott Lab’s (ABT-45.92), GlaxoSmithKline (GSK-39.14), Merck (MRK-32.32), and Pfizer (PFE-16.81). Our current “sell” list of PPH components contains only one issue at this time, Eli Lilly (LLY-33.60). The general trend remains a favorable one but the sharp advance of the past two weeks has left the PPH vulnerable somewhat extended to the upside.
III. Gold
GLD (streetTracks gold index) – The GLD (93.87) advanced 0.23% on the week. For the 2009 trading year the GLD currently rests with a positive return of 8.49%. The GLD is entering week three of a “sell” signal. Our weekly closing price resistance in order to maintain said “sell” signal shall be reset to 93.87. Any weekly closing price above 93.87 will negate our current “sell” signal for the GLD. The GLD closed out the week seven cents above our weekly price resistance level. Rather than issue a reversal of trend we want to see further strength in the coming week to confirm such a reversal. For now we shall maintain our weekly negative bias. We would look to trade the recent trading range of 92.00 – 94.00.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-993.73) closed out the trading week with a 0.79% advance. The XOI is now positive by 1.43% for the 2009 trading year. The XOI has closed above our weekly price resistance level therefore indicating a weekly change of trend. Our weekly price support in order to maintain our fresh weekly “buy” signal shall be set at 975.66. Any weekly closing price below 975.66 will negate our fresh “buy” signal for the XOI. A fresh weekly “buy” signal has been generated in XOI component Chevron-Texaco (CVX-70.68). Weekly “buy” signals remain in place for XOI components British Petroleum (BP-51.98) and Conoco-Phillips (COP-45.70). Weekly “sell” signals remain in place for XOI components Exxon-Mobil (XOM-70.12) and Suncor Energy (SU-31.54). The XOI closed at the highest price level for the 2009 trading year. It appears that an upside run toward the 1050.00 price resistance level is forthcoming. While we have reversed our two-week negative stance we shall take a “cautiously” bullish stance for the XOI unless a weekly closing price above 1050.00 is achieved.
The Oil Service Index (OIH-108.00) declined 1.05% this past trading week. The 2009 year to date return for the OIH stands at a positive 46.44%. The OIH is entering week seven of a “buy” signal. Our weekly closing price support level shall be raised to 105.01. Any weekly closing price below 105.01 will negate our current weekly “buy” signal for the OIH. OIH components currently in “sell” mode and remaining so are Schlumberger (SLB-57.36), Baker Hughes (BHI-38.09), Ensco (ESV-38.14), and Transocean (RIG-77.56). Weekly “buy” signals remain in place for OIH components Halliburton (HAL-24.13) and B.J. Services (BJS-15.43). A non-eventful week for the OIH and related components as prices were relatively unchanged. While the OIH has maintained favorable weekly status we remain concerned about the relative weakness displayed by the individual internal components.
Natural Gas (UNG-11.13) declined 1.94% this past week. The current 2009 performance of the UNG is a negative 51.96%. The UNG is entering week three of a “sell” signal. Our weekly price resistance level shall be lowered to 11.79. Any weekly closing price above 11.79 will negate our current “sell” signal for the UNG. The UNG continues to maintain the distinction as the most underperforming commodity in the marketplace. Bottom picking is a very difficult task, we shall continue to resist this temptation; use price strength to reduce long exposure and or to initiate short positions.
The Coal Sector (KOL-28.05) declined by 3.11% this past week. Year-to-date the KOL is positive by 88.38%. The KOL is entering the seventh week of a “buy” signal. Our weekly closing price support shall remain at 27.95. Any weekly closing price below 27.95 will negate our current “buy” signal for the KOL. Week seven of a “buy” signal, the momentum favors the upside with the 32.00 level in our sights; use price weakness to increase long exposure and or to initiate long trades.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +24, an increase from the previous week reading of +20. Currently 90.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is an increase from 83.0% in the prior week. The Dow Jones Industrial average advanced 0.40% for the week to 9544.20. The current return for the 2009 trading year stands at a positive 8.75%.
The S&P 500, as measured by the SPY (103.38), advanced 0.40% for the week. The 2009 trading year return for the SPY is positive by 14.56%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 58.05), declined 0.17% for the week. The IWM year to date return is currently a positive 17.89%.
The DIA (95.58) closed out the week with a 0.58% advance and is entering the seventh week of a “buy” signal. Our weekly closing price support level shall be raised to 94.60. Any weekly closing price below 94.60 will negate our current “buy” signal for the DIA. It was a minor percentage advance last week for the DIA but it was enough to keep the uptrend intact. Our weekly price support has been raised significantly this week; any close below this support level will indicate a potential sharp pullback to the 88.00 area. This being stated, the trend currently remains favorable with near term upside potential to the 100.00 price level.
Fresh weekly buy signals generated: CVX, INTC
Fresh negative weekly signals generated: NONE
Readers should take note that there are no Dow Jones Industrial components scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
AA, AXP, BA, BAC, CAT, CVX, DD, DIS, GE, HD, HPQ, IBM, INTC, JNJ, JPM, KFT, KO, MCD, MMM, MRK, MSFT, PFE, T, TRV, UTX, VZ, WMT
Dow 30 stocks with negative weekly signals:
CSCO, PG, XOM
· Underline names have changed from previous week*
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VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, August 31
Economic
Earnings
Before: JAVA
After: FMCN, SINA
Events
GIII, TRLG at Lazard Capital Markets MAGIC Retail & Apparel Conf.
Credit Suisse Group
FED: $30 bln 3-month Treasury Bill Auction; $29 bln 6-month Treasury Bill Auction
Tuesday, September 1
Economic
Earnings
Before: CRMT, DHT, RAIL, GIGM, NOVN, TUTR
After: ADCT, AVAV, APSG, DCI, SEAC, TTWO, PAY
Events
| VMW VMworld 2009 General Session Webcast FFIV Bus Tour with RBC Capital MTW, ITT, HON, GE at Morgan Stanley Global Industrials Unplugged Conf. CBST at FTN Financial Health Care Corporate Access Conf. WRC, GES at Lazard Capital Markets MAGIC Retail & Apparel Conf. |
Wednesday, September 2
Economic
Earnings
Before: BRLI, BTH, BF/B, JOYG, SYNO, ZLC
After: ABM, PSS, GEF, MATK, OXM, SAI
Events
TIVO Shareholders Meeting
HUM at FTN Equity Capital Corporate Access Health Care Conf.
NOC, MMM, RTN, LMT at Morgan Stanley Global Industrials Unplugged Conf.
ATX,
ASML, ERIC at Merrill Lynch Technology Conf.
FED: Fed's Lockhart
Thursday, September 3
Economic
Earnings
Before: AHII, CIEN, DLM, FLOW, JTX, LAYN, MDZ, MEI, MOV, SCMR, TK, UTIW
After: ARST, CHP, COO, ESL, GIII, HOV, PSEM, ZQK, SB, SNDA, SWHC, TSCM, ULTA, WIND
Events
PNR Analyst Meeting
CA, VMW Investor Breakfast
FED: Fed's Fisher
Friday, September 4
Economic
Earnings
Before: ACET, HRB
After:
Events
CX Shareholders Meeting
Bond Markets Close Early for Labor Day
FED: Geithner Meets with G-20 Finance Ministers in
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